Correlation Between Capital Income and Short-term Bond
Can any of the company-specific risk be diversified away by investing in both Capital Income and Short-term Bond at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Capital Income and Short-term Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Income Builder and Short Term Bond Fund, you can compare the effects of market volatilities on Capital Income and Short-term Bond and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Capital Income with a short position of Short-term Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Short-term Bond.
Diversification Opportunities for Capital Income and Short-term Bond
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Capital and SHORT-TERM is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and Capital Income is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Capital Income Builder are associated (or correlated) with Short-term Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of Capital Income i.e., Capital Income and Short-term Bond go up and down completely randomly.
Pair Corralation between Capital Income and Short-term Bond
Assuming the 90 days horizon Capital Income Builder is expected to generate 2.57 times more return on investment than Short-term Bond. However, Capital Income is 2.57 times more volatile than Short Term Bond Fund. It trades about 0.05 of its potential returns per unit of risk. Short Term Bond Fund is currently generating about 0.08 per unit of risk. If you would invest 6,136 in Capital Income Builder on October 23, 2024 and sell it today you would earn a total of 859.00 from holding Capital Income Builder or generate 14.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. Short Term Bond Fund
Performance |
| Timeline |
| Capital Income Builder |
| Short Term Bond |
Capital Income and Short-term Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and Short-term Bond
The main advantage of trading using opposite Capital Income and Short-term Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income position performs unexpectedly, Short-term Bond can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Short-term Bond will offset losses from the drop in Short-term Bond's long position.| Capital Income vs. Legg Mason Partners | Capital Income vs. Artisan Developing World | Capital Income vs. Ab All Market | Capital Income vs. Oklahoma College Savings |
| Short-term Bond vs. Nasdaq 100 Profund Nasdaq 100 | Short-term Bond vs. Aqr Diversified Arbitrage | Short-term Bond vs. Shelton Funds | Short-term Bond vs. Delaware Limited Term Diversified |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.
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